Private credit stress deepens as redemptions surge and default warnings mount
The liquidity crunch in private credit is intensifying. Cliffwater's $33 billion flagship interval fund capped Q1 redemptions at 7% after investors sought to pull a record 14% of shares — one of the largest withdrawal requests in the $1.8 trillion market. (BBG) Morgan Stanley's $8 billion North Haven Private Income Fund similarly gated withdrawals at 5%, returning less than half of what investors requested. (BBG) Both follow BlackRock's HPS fund capping redemptions last week, making this a sector-wide pattern rather than an isolated event. Concerns over loan quality — particularly heavy exposure to software companies facing AI-driven disruption — are a key driver of the exodus. (BBG via Wealthmanagement.com)
Separately, Partners Group chairman Steffen Meister warned that private credit default rates could double over the next few years from a decade-long average of 2.6%, arguing lenders bear the full downside of AI disruption while capturing limited upside. (FT via Reuters) The FT also reported that an investment fund is questioning valuations in Blue Owl's private credit portfolio, adding to scrutiny that has dogged the firm since it permanently closed redemption gates on its $1.6 billion OBDC II fund last month and was forced into a $1.4 billion asset sale. (BBG) Despite the growing red flags, Japanese insurers reportedly remain keen on private debt allocations. (BBG)